Upper Tribunal determines test for ‘exceptional circumstances’

In HMRC v A Taxpayer [2023] UKUT 00182 (TCC), the Upper Tribunal (‘UT’) has set aside the decision of the First-tier Tribunal (‘FTT’) and has provided guidance on the ‘exceptional circumstances’ test for the purpose of the Statutory Residence Test (‘SRT’).

The SRT was introduced by FA 2013 and has determined individual residence status for tax purposes since the 2013/14 tax year. Of central importance in the application of the SRT is the concept of day counting. Subject to two exemptions, of which the ‘exceptional circumstances’ test is one, all days in which a person was present in the UK at the end of a day counts as a day spent in the UK. This was the first time that the legislation has been before the tribunals.

The exception applies (para 22(4) of Schedule 45) where:

“(a) P would not be present in the UK at the end of that day but for exceptional circumstances beyond P's control that prevent P from leaving the UK, and

(b) P intends to leave the UK as soon as those circumstances permit.”

In this case, under the SRT the taxpayer was resident in the UK in 2015/16 unless she were able to establish that two trips that she made to the UK in that year (of two and four nights, respectively) fell within the exceptional circumstances exemption.  

The taxpayer’s case before the FTT was that she came to the UK on the two occasions because she was concerned that her twin sister (who suffered with depression and alcoholism) was at risk of committing suicide. The FTT disbelieved her on that issue, but nevertheless upheld her appeal on the basis that a combination of her sister’s alcoholism and the need for the taxpayer to care for her sister’s children constituted exceptional circumstances, and that the other elements of the test were met on each relevant day.

The UT (Michael Green J and Deputy Upper Tribunal Judge Redston) allowed HMRC’s appeal on all four grounds. In doing so, it gave guidance on the meaning and application of the statutory test, which will be of direct relevance to anyone seeking to rely upon the exemption.

At paragraph 125 of its decision, the UT set out the approach that should be taken by tribunals (and, by extension, advisers) in applying the test:

“(1) Consider separately each of the days for which the taxpayer is claiming to have met the para 22(4) requirements.

(2) For each of those days:

(a) Establish the facts which the taxpayer asserts relate to each of the five elements of the statutory test, the burden being on the taxpayer, namely that:

(i) the circumstances were exceptional;

(ii) the circumstances were beyond the taxpayer’s control;

(iii) the taxpayer would not have been present in the UK at the end of that day but for those circumstances;

(iv) the circumstances prevented the taxpayer from leaving the UK; and.

(v) the taxpayer intended to leave the UK as soon as those circumstances permitted.

(b) Establish the facts which the taxpayer asserts show that the circumstances changed so as to allow the taxpayer to leave the UK after the end of the relevant day or days; this will shed light on whether the taxpayer was previously prevented from leaving by the exceptional circumstances.

(c) Consider which facts are objectively proven, either by documents or credible oral evidence, or by both.

(d) In the light of those proven facts, decide whether each of the statutory requirements has been satisfied.”

Two elements of the test call for specific comment.

The first is the meaning of exceptional circumstances. The UT found that the FTT had erred in deciding that the circumstances found by the FTT constituted exceptional circumstances. In doing so, it took into account the statutory examples of circumstances which may be exceptional (paragraph 22(5) of Schedule 45):

“(a) national or local emergencies such as war, civil unrest or natural disasters, and

(b) a sudden or life-threatening illness or injury.”

These are only examples, but they provide guidance as to the types of circumstances that might fall within the meaning of exceptional circumstances. The FTT had found that the illness of the taxpayer’s sister was neither life-threatening nor sudden. That the statutory examples did not apply was a significant factor in demonstrating that the circumstances were not exceptional.

The second point of general application arising from the UT’s decision is the meaning of the requirement that the circumstances must ‘prevent’ the taxpayer from leaving the UK. This requirement was not found in the previous non-statutory guidance (IR20 and HMRC6).  The UT concluded that Parliament must have intended the ‘prevent’ wording to add an important condition, which must not be glossed over. The word ‘prevent’ is stricter than hinder. It should be interpreted as meaning that the exceptional circumstances stop the person from leaving the UK or make it impossible, not merely that they make it harder.  

The FTT had found that the ‘prevent’ requirement was fulfilled because the taxpayer had an understandable sense of moral obligation towards her sister and her sister’s children. The UT found that the FTT erred in doing so because it had not considered whether the exceptional circumstances themselves prevented the taxpayer from leaving the UK. Moral or conscientious obligations to be in the UK will not by themselves be sufficient to satisfy the statutory test.   

Christopher Stone and Sam Way appeared for HMRC.

A full copy of the judgement can be found here.

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